Rick Kahler's Financial Awakenings

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What would you do if you won the lottery? Many of us at one time or another have daydreamed about what we would do with a big sum of money. For most of us, the daydream usually doesn’t last long. Reality comes knocking, and we’re off to wipe a toddler’s runny nose, paint the deck, or show up at work.

Attending a training session last week at the Sudden Money Institute, however, reminded me that receiving a large sum of money can be a reality more often than we might imagine. Very little sudden wealth comes from picking winning lottery numbers. Much more comes from an inheritance, life insurance, marriage, divorce, winning a lawsuit, selling a business, or a large professional contract (not only for actors, writers, or athletes, but also for consultants or business owners).

Receiving an unexpected sum of money from these events typically has a life-changing impact. For the unprepared, which describes most recipients, the impact can be unpleasant or even destructive. While this is an opportunity for having enough money to support your dreams, goals, and values, it is also an opportunity to bring an inordinate amount of pain and suffering into your life. Statistics show the average person who receives a large sum of money blows through it in five to seven years.

The changes affecting someone who receives a windfall are better described as a “transition,” according to Susan Bradley, author of Sudden Money. “A transition is a time of change – “what was” no longer exists and “what will be” has not yet taken shape,” she says.

By definition, a transition is a temporary state. It is a time of overwhelming emotions, opportunity, and options. It requires conscious and thoughtful planning if the opportunity is to be seized and capitalized upon, rather than squandered. Susan suggests there are three phases to any successful transition around receiving sudden money: Planning and Preparation, Implementation and Spending, and Stewardship.

In the planning stage, some of the areas people need to consider are how the money will affect their personal finances, insurance needs, legal issues, estate planning, health, relationships, self-discovery, and place of residence.

Transitioning from a life with limited resources to having access to a large sum of money needs very specialized planning. There are far more questions that must be answered than just, “What would you do with a large sum of money?”

Here is just a sampling of some of the questions to consider:

• Might you quit work, go back to college, or do volunteer work?

• How much of the money will you spend and how much will be saved?

• How might each expenditure affect your future cash flow and relationships?

• To whom will you turn for help with the financial, legal, and emotional issues you will encounter?

• What new asset protection strategies will you need, i.e. insurance, wills, trusts, corporations?

• How will your relationships change with family and friends? Which will need more attention?

• Will your housing change, and how will that change affect your finances, lifestyle, and relationships?

• What changes will you make to your health care?

If you are or expect to be the recipient of a large sum of money, I would highly recommend you obtain Susan’s book, Sudden Money, and employ the help of a financial planner specializing in this area. A list of those planners can be found at http://suddenmoney.com.

Preparing for such an eventuality is far more than daydreaming. Neither, in the case of an inheritance, is it uncaring or morbid. It is a way to ensure that the dream doesn’t become a nightmare when it really happens.

To Watch Rick’s Column: Click Here or To Listen to Rick’s Column: Click Here

My favorite TV show theme song is The Apprentice’s “Money, Money, Money.” On rare occasions I have even been known to join my five-year old son, Davin, in jiving to it. Being the entrepreneur that I am, I enjoy watching the show to see the creativity and management decisions made by the contestants as they are given their various challenges.

A recent survey by Pew Research Center, reported by USA Today, suggests that many younger Americans watch shows like The Apprentice for a different reason. It feeds their dreams of becoming rich and famous. Now, I have no problem with someone desiring to be rich or famous. Youthful dreams are important. Still, having a dream that requires a lot of money, as many do, is completely different from having a dream that’s limited to having a lot of money.

The Pew survey found that 81% of those aged 18 to 25 have a number-one goal of being rich. The second most important life goal for 51% of the respondents was to become famous.

The interesting twist is that today’s youth don’t seem to want to become famous as entertainers, writers, actors, etc. Instead, they want to become famous for being themselves, as modeled by many of the winners of reality shows.

A 2005 survey done by Higher Education Research Institute reported similar results, with 75% of college freshmen saying it was “very important” or “essential” to be rich. In 1967, only 42% said being rich was essential.

It’s not surprising to note that, in 1967, 86% of college freshmen said it was “very important” or “essential” to “develop a meaningful philosophy of life.” In 2005, only 45% said the same.

The fact that eight out of ten young adults want nothing more in life than to be rich is troubling to me. I was under an illusion that the young people of today were actually more altruistic than when I was a teenager.

It is some comfort to realize that my own views on wealth and riches have changed over the years. Had I been one of those freshmen polled in 1967, I would been among those saying that being rich was essential.

Thirty years later, I see things differently. First, “rich” is relative and elusive. I’ve discovered that once a person earns more than $50,000 a year, rich is more a condition of the mind than the net worth statement.

Second, in my career I’ve worked with some very rich people and some very famous people. They have helped me see that being rich or famous offers its own unique challenges. I’ve truly come to value the previously unappreciated benefits of being upper middle class and unknown. One of those benefits is that I can be loved and accepted for who I am, rather than what I have or what I could potentially do for someone else. The rich and famous don’t have that luxury.

I wrote this on a plane, bound for a meeting in Florida. Sitting next to me was a 63-year-old retired CPA, a man well acquainted with money matters during his career. He told me what a privilege it was for him and his wife to live in the same town with their grandchildren. He summed it up by saying, “It doesn’t get any better in life than having good relationships with family and friends. That’s really what life is all about.”

If today’s 18-25 year olds are polled again when they are 63, I’m guessing at least 81% of them will agree. The older we get, the more we come to realize that it’s not about the money.

As our clients know, we are growing. And now, we are looking for the right CFP to join our team. Being a CFP in a fee-only financial planning practice, while a rare opportunity, is not for everyone. A fee-only practice is far different from the brokerage world, where product is king and production is mandatory. At KFG, we don’t sell any products, so the client is king and technical knowledge mandatory. Continue Reading »

Rick was recently quoted in a Washington Times story by Karen Goldberg Goff, "Always In Hock." The article, which ran on Sunday, January 7th, 2007, profiled overspending couples. Goff says of Rick, "South Dakota financial planner Rick Kahler, author of the book The Financial Wisdom of Ebenezer Scrooge, says overspending has little to do with how much money one makes. "I can think of one couple who makes $350,000 but spends $400,000 and one who makes $700,000 but spends $1.2 million," he says. "It is totally relative. One can make $30,000 a year and overspend as easily as someone who makes a million." Probably the most notable aspect of the article to those close to Rick was the fact that he originally thought he was interviewed by the Washington Post and was calling his DC friends asking for copies. He now has several copies of the January 7 Washington Post! One other notable correction that was left out of the story was the fact that Rick is not THE author of The Financial Wisdom of Ebenezer Scrooge, but a co-author with Drs. Ted and Brad Klontz. You can read the article by clicking here.

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Owning your own home is an integral part of the American Dream. Like every dream, however, it isn’t necessarily the right decision for everyone. Let’s take a look at two examples of people who chose to rent rather than own.

Tony is a middle-aged man who has never married. For the past 15 years he has lived in the same small, inexpensive apartment. It is comfortable enough and certainly adequate, but that’s about all that can be said for it. Tony doesn’t care. He prefers to spend his discretionary funds on boating, snowmobiling, skiing, and travel. He also spends his free time on those activities instead of having to maintain a house and yard.

The Thompson family lived in a small rented house for nearly 20 years. The rent was low, which allowed the husband to do modestly-paid work he loved and allowed the wife to stay home when the couple’s two children were young. Eventually, however, the marriage ended in divorce. Mrs. Thompson stayed for a time in the rental house, then decided she wanted a place of her own. Even though she was working and earning enough to live comfortably, she had a terrible time finding a house she could afford to buy.

In these two examples, renting was clearly the right choice for Tony. To me, at least, it was the wrong choice for the Thompsons. One important difference? Net worth.

Tony spent his money on things that brought value to his life, which included securing his financial future. While living in his modest apartment, Tony was investing. The money he didn’t need to spend on housing went into mutual funds. Today, he has a substantial portfolio. If he chooses, he can quit work in another ten years, with enough income to travel, ski, and go boating as much as he wishes.

The Thompsons, on the other hand, saw renting instead of buying as a way to live on one income and raise their children in the way that was important to them. This was certainly admirable and worked well for them. However, the couple never managed to invest anything substantial for their retirement. Even when Mrs. Thompson took a job after the children were teenagers, her earnings went to help put them through college.

When the Thompsons divorced, they had no debt. Neither did they have any substantial assets. With no equity in a house, no investments, and little savings, to call their net worth "modest" would have been an exaggeration. Buying a house some 20 years earlier would possibly have been difficult and involved some sacrifice for the first few years. As their earnings increased over the years, however, the payments would have stayed the same and therefore taken a smaller percentage of their income. By the time the marriage ended, the house would have been nearly paid for. The shared equity would have given each of them something with which to start their new lives.

The second mistake the Thompsons made was to devote the wife’s earnings to the children’s education at the cost of their own future financial security.

Financial planners generally do not consider clients’ homes as part of their assets. We consider home ownership as providing a place to live rather than as an investment. In most cases, however, it does also help build net worth.

Renting instead of buying can certainly work well for some. It is essential, however, to create net worth at the same time. Long-term renting can be a wise choice when renting costs substantially less than owning (think beaches and big cities), when you move frequently, or when you invest enough to assure your financial independence.

KFG clients are certainly spreading the word about our services. In the past six months, we’ve taken on more new clients as a direct result of your referrals than ever before. We are honored and humbled every time we receive a referral. In our book, that is the highest compliment a client can give us.  We want to thank all of you who have told your family and friends about us. Referrals are the number one way we grow our business.

Some of you have asked how you can put information on KFG into the hands of your friends and family. The easiest way is to simply put our weekly newsletter in their inbox! Just give them our website address, www.kahlerfinancial.com. By going to our website, anyone can sign up for our weekly newsletter by entering their email address in the upper left hand corner of our home page. That is all that is required. It’s quick, simple, and non-intrusive. 

Then, every Tuesday, they will receive the "non-client" version of our newsletter. The "non-client" version leads with our weekly column and eliminates any news items that would only be of interest to KFG clients. So, go ahead and spread the KFG newsletter!

Listen to Rick’s Column Here or Watch Rick’s Column Here

My family and I spent Christmas taking my daughter’s "dream vacation," a Caribbean cruise. I’m not much of a sun, sand, and sea guy, so my enjoyment of cruising is based on relaxation and good food. I prefer to select a larger ship that has all the amenities and a well-rated specialty restaurant.

On this particular trip, however, I decided to make cost the priority. I selected the smallest ship in the Celebrity fleet, the Zenith, knowing it didn’t have a specialty restaurant. Still, the price was attractive; almost too low, in fact. There had to be a catch.

I asked the reservation agent what the catch was. He said the ship was being sold in April 2007 to another company. Since this was an obvious red flag, I asked why the ship was being sold. I was told it was because it lacked Celebrity’s trademark balconies, and it was being replaced with an even smaller ship that had balconies. I decided this wasn’t a problem. Being the value-oriented shopper that I am, I don’t purchase outside cabins, preferring the cheaper inside staterooms.

Still, I thought I should do a little more checking on the Zenith. I grabbed my trusty Berlitz Guide to Ocean Cruising and Cruise Ships and looked her up. They gave the ship four out of five stars and a pretty good review. I checked with www.cruisecritic.com, which gave her a favorable review and rated her equal to the Galaxy, a ship our family had previously enjoyed. Having done my due diligence, I booked the cruise.

Within two hours of boarding the Zenith, I knew I had made a big mistake. The ship was a broken down mess. There was peeling paint and rust everywhere. The decks were dirty, the furnishings were worn and tattered, and my toilet didn’t work for two days. The computers didn’t support the programs I use to access my office desktop. The gym didn’t have complete sets of weights, yoga mats, or fully functioning treadmills. The kids’ play area was so small and sparse that we had to beg our kids to go there—a first.

It was what you might expect of a ship being sold soon, where the owners were doing everything possible to minimize capital improvements and milk every last bit of use out of her.

Fortunately, not everything was a mess. The food was very good and the showers had plenty of hot water.

All in all, London’s "dream vacation" wasn’t what I had hoped for. Still, I can’t look back and beat myself up too much about my selection process. I was reasonably thorough in my due diligence. There simply are limits to what one can research.

In part this is because the information available about a product, a cruise ship, or an investment is based on past performance rather than current or future conditions. Brokers who sell investments often rely on "past performance" as a selling point. What they tend not to mention is the fact that changing market conditions and many other factors can turn past performance statistics into a bunch of irrelevant numbers. In addition, there is always the occasional investment where everything appears to check out fine, but reasons no one could have anticipated make it turn sour.

Is it a mistake to trust a brand name or rely on past performance? Not necessarily. What is a mistake is to assume that those elements are a guarantee of satisfaction. Whether it’s a cruise ship or an investment, it’s important to do as much research as you can. It’s just as important to accept the truth that sometimes the reality won’t live up to your expectations.

Listen to Rick’s first interview of 2007 with talk show host Olivia Mellan, on WWDB-AM 850, an exclusive financial news and information station in Philadelphia, PA.  The topic of today’s interview was how money issues can destroy a marriage relationship.  Learn how you can identify trouble spots and what to do, before it’s too late. Click here to listen.

Upon login to the AdvisorClient website, KFG clients will be given the opportunity to enter a secret question and answer to help you access your accounts if you forget your password. The new process can then be used to reset the password you were given initially. Rather than calling our office, you can now simply click the "Forgot Your Password?" link on the login page. This new enhancement should save you time and make accessing your account at TD Ameritrade easier.

On the first day of a new year, my thoughts and hopes for each and everyone of you is for a rich, prosperous new year.  Of course, being a financial planner, that would include hopes that you will make wise money decisions and that your net worth and income will increase. 

My wish goes further than increased financial gains, it is a wish that your money will be more of a servant this year than it has ever been to support your dreams, desires, and values. 

For some, prospering may include increasing your net worth, cutting spending, or raising your income.  For another it may include decreasing your net worth by spending more than you ever have in the past to support what is really important to you in life.  As my coach often asks me, "What do you want to do with your one precious and wild life?"

Every person has the opportunity to write and live our definition of "rich" and "prosperous."  The first step in writing your definition of "rich" and "prosperous" is knowing what those words mean to you, maybe that’s a great place to start the new year.

My hope and prayer for each one of us is that the definition we write and live is the definition that makes our heart sing and allows our spirits to soar.